It seems for 7 years now I’ve been having to defend owning bonds in a portfolio. Back in 2010 the “experts” started talking about the ending of the 30+ year bond bull market. They told us interest rates had to go up because a.) the economy was expanding, b.) the level of debt our country had, & c.) rates were already low. While some of the logic made sense (and still does), we have to keep in mind at the time the 10 year Treasury was yielding 3.8%. It is now at 2.2%. Remember as rates go down, prices on bonds go up. Conversely, when rates go up, prices go down, which is why all the “experts” were telling people to sell bonds.
What frustrates me with this blanket advice is these “experts” do not know each investor’s personal situation. Their alternative to owning bonds is to own more stocks. While that has worked well during this raging bull market, the reason most people own bonds is because they cannot afford the risk of stocks. Yes bonds are at risk of going down in value, but not as much as stocks would. In addition, not all bonds would be hurt by a rise in interest rates.
As an alternative, SEM offers actively managed fixed income portfolios designed to capture the areas of the bond market that have better return/risk ratios. We have three fixed income portfolios — Income Allocator, Tactical Bond, & Dynamic Income Allocation. Our Dynamic Defensive Growth ENCORE is a combination of all 3. This week’s chart of the week shows how our fixed income strategy stacks up to a buy & hold bond portfolio. We show this because we have run into investors that either believe they are “safe” in these other bond index strategies or believe they have no other alternative to fixed income. Remember, the effective duration is the exposure to interest rate risk. The higher the duration, the higher risk the portfolio is if (when) interest rates go up.
SEM’s income portfolios have a higher current yield, lower duration, & significantly better long-term returns.
